Who is at risk for a class action lawsuit and how much does a lawyer earn from it?

This year, a bill was registered in the Verkhovna Rada providing for collective actions. This institute has emerged in England, has got the most development in the USA, but now is gaining momentum worldwide. Moreover, according to Pravo.ru, the claims of the applicants can bring big companies into bankruptcy.

Says Law & Business.

From emergence to rebirth

The Group Claims Institute, as a tool to protect the rights of a wide range of people before the more economically powerful party, has established itself in the countries of common law where it originated. Even those who are far removed from jurisprudence have heard of “high-profile” cases in the US, when a large group of people have filed a class action lawsuit against large corporations. The popularity of such lawsuits is evidenced by the fact that books and films are devoted to them.

The first proceedings reminiscent of class actions, took place in England in the XIII century. At that time, the settlers agreed on a “class action” against, for example, landowners. By the eighteenth century, historically, the possibility of collective redress in England had run out. This was facilitated by the general sentiment in favor of large business associations, the factual paralysis of the courts of general jurisdiction during the war, and the fact that such disputes were allowed to be heard in only one court.

However, the institute began to develop in another country. In 1833, the so-called Equity Rule 48 was adopted in the United States for “representative proceedings,” which set out what to do if there were too many cases of the same type. It was it that formed the basis of modern legislation on such claims.

Collective lawsuits have become widespread since the 1950s. Their popularity has grown amid the intensification of struggle for civil rights and environmental protection. It was in the US that the institute was the most sought after. The defendants, as a rule, were big business: consumers who fell victim to certain corporate actions joined together and shared legal costs.

The hearings have proven to be a significant threat to business. Defendant corporations seek to negotiate without trial, because otherwise, under US law, they will have to pay full damages. Thus, cigarette maker Philip Morris, who brought the case to court, was forced to pay $ 79.5 million. The fine was almost 100 times higher than the court-ordered compensation.

Disputes on the verge of bankruptcy

In the US, they have even begun to amend legislation to protect companies from the billion-dollar claims that often lead them to bankruptcy.

At the end of 2018, a lawsuit was filed against the energy company Pacific Gas & Electric (the largest in California). The cause was large-scale fires in the state. The company, according to the applicants, is to blame for not de-energizing in one of the network districts, despite adverse weather conditions. This could cause a fire. Now the company is on the verge of bankruptcy. In September, it became known that it was preparing a plan to overcome the crisis, given that investors would invest $ 14 billion in it. The issue of settling claims is still open.

In the US, the banks had a difficult time too: Visa, MasterCard and several credit organizations (JPMorgan Chase, Bank of America and Citigroup) paid retailers over $ 6.2 billion in a class-action lawsuit. The lawsuit was examined for almost 10 years, the applicants were not satisfied that banks and payment systems overestimated commissions if payments were made using bank cards.

Another common category of lawsuits is in the securities market: in situations where decisions of the management of companies depreciate their shares, shareholders can join and sue, as is the case abroad. Thus, in the United States over the past two years the number of such disputes has doubled.

Many consumer lawsuits are filed with auto companies. In 2017, a class action lawsuit was filed against Tesla. Buyers complained about the autopilot, which worked incorrectly. As a result, the company agreed to pay $ 5 million to settle the case.

The story of the lawyer William Lerak, who earned $ 900 million in class actions, was indicative in the sense of the institute’s work. He received compensation of $ 7.12 billion from the Enron energy company. This was one of the reasons for the company’s collapse.

“The purpose of these lawsuits was to obtain compensation for victims of financial misconduct. If I dismiss the extra modesty, then I am proud of my work. Over time, these lawsuits have become a kind of prevention, and I have been told many times that thanks to these “lectures” great managers behaved a little better “, – said V.Lerak after his release from prison.

He was convicted of some fraud during the process. For example, members of a law firm bought the company’s securities in order to become plaintiffs in a class action against her.

Profitable business

In the United States, in the first 10 years of the 21st century, legal companies earned about $ 16 billion from class actions against securities. As a result, in the US in 2005 passed the law Class Action Fairness Act. Now in America, you can only sue a group of claimants with at least 100 people, and the amount of claims should start from $ 5 million. Thus, the United States reduced the number of class action lawsuits, while the rest of the world is “developing a taste for them”.

The European Union is only trying to “taste” the class action lawsuits. The first new institute was introduced in 1994 by the Netherlands, followed by Portugal. Group lawsuits can also be filed in Spain, Germany, Denmark and Bulgaria. And in 2012, the European Commission began consultations on the development of class action lawsuits for the EU countries.

In countries with advanced class action regulation, litigation plays one of the most important roles in such processes. For example, in Australia, in 2017, almost half of such lawsuits filed in federal court were funded by outside investors. And in the US, there are extremely successful legal investors specializing solely in the B2C marketplace, working with the mass requirements of individuals, including through the class action toolkit.

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